 Welcome back to chapter number five. We're going to move from the HR business case to the environmental organizations, and the environmental organizations exist. For example, the labor markets, but also of the employment law, industrial relations, and the society at large. So in the chapter five, six, and seven, I will dive into those contextual factors that also have an influence on how we can manage people in organizations. The first topic that we will discuss is the war for talent. I'm going to explain what it is and why we need to bother with it. So chapter five about the war for talent. After this clip, you will understand what the origins are of the war for talent idea, and the concepts that relate to it, the labor market, labor shortage, labor supply, and key concepts like employee turnover, attraction, and employee retention. These are the concepts that I will further expand on in the following two clips on the economic theories that go behind this, but also psychological theories on employee attraction and retention. But first, let's have a look at what is meant by this idea of the war for talent. Labor markets are important for societies at large. Labor markets are a word that is about the supply and demand for labor, and they can be imbalanced, and that means that everybody has a job, and all the organizations have all the positions in their organization fulfilled, or there can be a surplus of workers, and then we have a situation of unemployment, or there can be labor shortages. This war for talent idea dives into this idea that we are facing an era of increased labor shortages. And as an example, countries often look to Japan. Japan is a highly industrialized society who has, ahead of many other Western countries, a shrinking population. At large, the average age of the Japanese is growing older and older, and there are fewer and fewer younger employees to fill the ranks. So they are facing labor shortages in literally every level of society. And as a consequence, not all jobs are fulfilled, and organizations are hindered by this lack of workers available to be productive. And as a whole, if organizations can't fill their vacancies and jobs can't be fulfilled, they can't perform, and an entire country can end up in a recession. In fact, we see this pattern are repeated in many Western European countries as well. This idea that for a company to prosper in the end, it's not about having the best products or to be the most smart way of organizing things, it all comes down to having the people in your company to be able to do the jobs. So in a situation like that one in Japan, successful companies are the ones that manage to attract talents to the organizations. And talents in a modern definition is not just this rare and seldom talent that is, you know, everybody's looking for literally any employee with skills that is needed in the organization is a talent that is wanted by the organization, and that all employers are looking for. There has been a lot of writings about this idea for the war for talent. The term is coined by consultants by McKinsey, and already almost 30 years ago, and they predicted that future organizations would be most competitive if they have managed to attract the right and the most talented people to their organizations. Nowadays this has turned to organizations will survive if they manage to attract capable and motivated employees to their organization. So how to attract employees in a labor market that is characterized by scarcity. This quote about the war for talent is coming is from one of the consultants of KPMG. What is interesting in the quote, and I'll read it out loud, is that there are two elements that indicate both quantitative shortages, but also qualitative shortages. So here it reads, in the coming years the HR profession will be tasked with the recruitment and retention of qualified employees. The following is from a study of over 300 current HR professionals by KPMG. Thanks to the growth and the resultant internationalization in the global economy, the competition in the labor market will continue to steadily grow within the coming years. Even still, the research companies had recognized patterns in the behaviors of workers, especially younger members of the workforce. Talented young professionals are less likely to be committed to work for company for life and see traditional work relations within the companies differently as before. So what you see in this quote is under one hand there is quantitative war, so to speak. So just to have to find enough supply to the vacancies, but they also indicate that current generations have different expectations about what employers have to offer. So you might remember when we introduced the concept of protean careers that work has to be meaningful for employees to be willing to work in a certain company. This was already also reflected by heads of HR were describing the situation that they face in the labor market. They have to fight to find the right people, but also they have to convince the people that actually working with their organization is meaningful and that they have flexibility for developing your talent and to combine work and life at the same time, for example. So all these concepts refer back to the concept of labor markets, labor market being a virtual place where workers and employers interact and compete with each other. Employers compete for the best employees, but employees they compete as well, they compete for the best jobs. Central in the war for talent is labor shortage. That simply means that there are too many job openings as compared to employees who are available. If you rate the job opening versus available employees in general, it's assumed that when the unemployment rate is lower than 5% of the labor force, then there is a labor shortage. Why is it not 0% but 5%? There's always a group of people who is very difficult to match with the job openings who are there. So 5% unemployment indicates that there's difficulties for employers to find employees that fit all their positions. So what are the typical causes for these labor shortages? Well, some shortages they are temporal. They come and go with the seasons, for example in agriculture. In the harvest season they need many employees, but in the wintertime when there's rest there's no people needed. So the shortage is temporary. And the same we see with the tides of the economy. When there's high tide in the economy, there's a large need for employees and when there's a low tide, many employees are made redundant and there is no shortage, so to speak. Beside the temporal part, there are structural shortages. And I introduce you already a little bit to that by giving the example of Japan. They come in two tastes. The first one is quantitative shortage. Quantitative shortages, they are the consequences of demographics in society. So shrinking populations, aging populations, they all lead to a lesser availability simply of people who can work. Qualitative shortages, these are interesting because they indicate a mismatch between what is offered by employers and what employees are looking for. So in theory, there are enough employees or workers who could supply to the jobs that are available in organizations, but they don't want to. So what could be causes for these qualitative shortages? What are causes for mismatches? Well, one example is, for example, a mismatch between the kind of jobs, the kind of skills that are asked by the employers and what are offered by employees. So a common skills mismatch is, for example, in the technical jobs. There's a large demand for developers, for engineers, and there's still simply not enough students who pursue a technical career. So there's a high demand for high-skilled technical workers. This could indicate that students decide to go for the wrong education from a labor market perspective, right? Not from an individual's perspective. The other type of qualitative shortage has to do with the expectations of work that have changed over the years, and these refer to the supply side. So employees might have the right skills that the companies are looking for, but they are looking for a job closer to home, something that they can combine with their hobby. Maybe they want to do something, this job, but then in an organization that adds something meaningful to society. So there are a lot of reasons why employees may turn down available jobs. Well, here's something interesting for employers, and we will dive into this when we talk about psychological theories about the work for talent. Let's first have a look at the perspective that you can have on the labor market. And also to put things a little bit in perspective, there's a quote from a group of researchers from Tilburg University in 2013. They interviewed many professions where they predicted that scarcity would have great effects on how these companies or professions could deliver services in the future. And one nurse professional, she provided the following quote, and I'll read out loud. As long as I've worked in healthcare, there have been never-ending reports that predict that labor will become increasingly scarce and that it would lead to draconian effects. Beds would be made unavailable because of the lack of nurses. I have never experienced this. Hospitals are in such a state that one way or another, effective techniques are thought of or new innovations are developed so that we all have the ability to do more. And that is, of course, another view on labor shortages, nor the labor market and the demand for supply, but also the work itself is in continuous development. And something that is highlighted in the book that is quoted here is that technological innovation and changing the way of working are also ways to deal with labor shortages. However, in this chapter, I will just stick to the labor market supply and demand logic. So the concepts that are central in this chapter are to deal with why employees want to come work with an organization, why they want to leave and what we can do to retain them. So attraction, voluntary turnover and retention, these are the key concepts where we discuss human resource management in relation to labor markets. And we talk about practices such as employee recruitment, employer branding, compensation policies, employee segmentation, performance appraisal, talent management and onboarding and socialization. I will highlight these in the clips that go with this chapter. For now, you know that the worst for talent is HR language, consultancy language to indicate a shortage of qualified labor. The key concepts in the labor markets, we've talked about different types of labor shortage and we've talked about causes for qualitative shortages. In the next clips, I will dive a bit deeper into this by in clip number 13, I will talk about economic theories of attraction and retention, so what organizations do from an economist's perspective to attract and retain employees. And clip number 14, we'll dive into psychological theories of attraction and retention. Both of these have valuable lessons for HR implications.